From Protocols to Risk Managers: The Shift of DeFi Lending Power, Three Major Paths Determine Who Captures Institutional Gains.

Written by: Tiger Research

Translated by: AididiaoJP, Foresight News

The weighting of DeFi lending is shifting from protocols to risk managers with options. Entering the market boils down to a choice: borrow this judgment, provide this judgment, or own it yourself.

Key Points

• Roles of asset managers are emerging in DeFi; the era where everything is decided by protocols and governance has ended.
• The market is still early, but capital and distribution channels have begun to concentrate towards leading managers, whose past records are becoming institutional benchmarks.
• There are three entry paths: distribution (risk managers as the backend), supply (putting assets on-chain), and operation (becoming risk managers).
• The chosen path determines the control gained, the capabilities required, and the risks borne.
• The core issue is not whether to enter DeFi, but which judgments to delegate and which to retain.

1. Risk Managers: On-chain Asset Management Experts

Just as traditional finance has long separated judgment from execution, the crypto market has matured to the point where each function is handled by specialized players. The roles in traditional finance are as follows:

• Asset Manager: The "brain" of the fund, responsible for strategy formulation and issuing specific instructions to the custodian.
• Custodian: Holds assets, executes investments according to the manager's instructions, and supervises.
• Distributor: Distributes fund products to investors and raises capital.

The crypto market also has corresponding roles. DeFi was initially designed to fully rely on smart contract code, but over time, it has become apparent that code alone cannot fully manage on-chain risks.

To operate on-chain lending safely, a category of professionals specializing in assessing and coordinating complex risks has emerged, known as risk managers, who have effectively taken on the role of asset managers in the on-chain ecosystem.

2. Early DeFi Lacked Professionals

Early DeFi protocols like Aave and Compound bundled lending infrastructure and risk standards into a single structure. While risk managers existed at the time, their roles remained at the system level as "risk managers," responsible for adjusting the overall risk parameters of the protocol due to all assets being in one giant liquidity pool. With the influx of highly volatile assets, a single liquidity pool design meant that a bad asset could spread loss to the entire system, requiring someone to manage this contagion risk.

This situation changed with the emergence of Morpho, which split collateral assets and lending terms into independent markets. By replacing the single giant liquidity pool with a multi-vault structure, asset management strategies became modular, and the role of risk managers underwent a complete transformation. They were no longer passively managing risk within a fixed framework of a single protocol, but external professionals who could design and operate independent lending vaults according to their own standards.

As infrastructure and risk judgment became completely separated, risk managers evolved from system-level risk managers to "asset managers" in the crypto market, actively operating multiple vaults.

3. Current Market Leaders

As of May 2026, the risk manager market manages approximately $7 billion in assets, with the top three teams occupying 70% of it. The market truly entered the institutional space in 2025, but capital has quickly concentrated, indicating that capital is following teams with reliable past records. The three leading teams have reached the top through different paths:

• SteakhouseFi: A conservative risk manager leading the adoption of high-grade real-world assets (RWA, such as US Treasury bonds). As the backend for Coinbase's lending service, it opened distribution channels, currently ranking first in AUM (as of February 2026, $1.53 billion). Besides AUM, the team also set industry standards for which real-world assets can be considered legal DeFi collateral.
• SentoraHQ: A team relying on AI risk models and institutional-level data infrastructure. As the backend for Kraken, it has secured institutional capital pipelines, ranking second in AUM ($1.34 billion). It has won channels connecting exchanges and institutional clients.
• Gauntlet: Originally a blockchain quantitative analysis company responsible for simulating risk parameters. In October 2025, when $775 million flowed into one of its pools, the team restored the crashing APY to normal within 10 days, demonstrating its capabilities. It ranks third in AUM ($1.29 billion) and is recognized as the strongest team in risk defense and crisis response to large fund inflows.

At this stage, the risk manager market is no longer just a simple TVL competition but a competition to be the first to establish standards: collateral standards, distribution channels, and risk response capabilities.

4. Traditional Asset Management vs DeFi Risk Managers

As Morpho fragmented the market, professionals are required to make judgments on each collateral type. Professional risk teams like Steakhouse entered the market as DeFi risk managers. Through this transformation, DeFi began to approach traditional asset management processes.

By reading the chart from top to bottom, one can see how today’s DeFi infrastructure replicates the labor division of traditional finance on-chain:

• Capital Raising and Distribution (Top): Institutional investors as capital sources are positioned at the top. Their large capital pools flow into the on-chain ecosystem via mainstream CeFi exchanges and platforms, which assume the role of TradFi distributors (brokers).
• Strategy Design and Risk Control (Middle): Below are DeFi risk managers, who determine how incoming capital is managed. Similar to portfolio managers (PM) and risk committees of traditional asset managers, they set asset admission standards and limits, and design overall investment strategies.
• Product Assembly and Custody (Bottom): The strategies of risk managers become investable on-chain products through the underlying vault infrastructure. At the bottom are the lending protocol primitives, holding assets and executing settlements in code, replacing the custodial and trading infrastructure of TradFi.

From capital raising to management to custody, the entire process now mirrors the labor division of traditional finance. For traditional TradFi institutions, on-chain lending is no longer a foreign territory, but a structured market they are familiar with, leading to natural entry opportunities.

5. TradFi-like Industry: Where are the Opportunities?

With the on-chain lending infrastructure adopting a labor division similar to TradFi asset management, the door for institutions to enter has opened. However, not every layer has the same entry threshold.

• Distribution Layer: The customer-facing terminal market is highly saturated, and TradFi institutions are competing directly here against inefficiencies.
• Management Layer: A field completely driven by financial expertise and manpower. Assessing, controlling, and packaging asset risks is precisely the core work of traditional asset managers. They do not need to build complex systems to apply existing risk management capabilities to the established modular infrastructure, instantly gaining a business model.
• Custody and Infrastructure Layer: Asset custody and trading processing are technology-intensive businesses that require deep blockchain engineering capabilities. It is unrealistic for TradFi institutions to build systems and compete here.

Unlike other layers that require technical or platform first-mover advantages, the management layer is the clearest opportunity window, where TradFi institutions can achieve market leadership solely based on their existing risk management capabilities.

Institutions currently enter the DeFi market through three paths: distribution, supply, and operation. Regardless of the chosen path, the driving engine of the market is the "risk curation" capability of asset managers.

Distribution: Risk Managers as the Backend

Connecting verified external risk managers as the backend allows for rapid market entry. This is suitable for exchanges and fintech companies that have customer channels but lack internal management capabilities. Strategies can be outsourced, but the reputation risk and accountability of the chosen risk manager are still borne by them.

This is the path chosen by centralized exchanges with strong customer touchpoints but unwilling to directly manage the complex risks of on-chain lending. They have connected verified external risk managers as the backend and launched lending services. Exchanges distribute large capital pools through their own platforms, while collateral assessment and risk management are entirely handed over to partner risk managers.

Supply: Putting Assets on Chain

Asset managers holding RWAs or credit assets supply these assets directly to the market. Like Apollo, they can earn Morpho governance tokens while supplying assets, thereby shaping the standards of the infrastructure (such as collateral standards). The challenge lies in asset standardization and regulatory infrastructure construction.

Large private equity funds or institutions holding real-world assets place their capital directly onto on-chain tracks. Apollo not only supplies assets but also acquires governance tokens from major lending protocols. This move aims to push forward rules and standards that recognize their real-world assets as superior and safer "official collateral" in the on-chain market.

However, asset suppliers cannot simply register any asset as collateral. Someone must calmly assess whether the asset is genuinely safe and whether it can be readily liquidated in the event of an on-chain liquidation. This requires strict assessment and endorsement capabilities from risk managers. Ultimately, the supply path must also depend on the risk validation capabilities of asset managers to be established.

Operation: Becoming a Risk Manager (Bitwise)

Asset managers design strategies and operate their own vaults. Bitwise defines the on-chain vault structure as "ETF 2.0" and enters directly. This path offers the strongest control over fees and collateral standards, but managers also bear full responsibility for any operational failures. It is suitable for asset managers with internal risk teams.

This is the path for traditional asset managers to enter as risk managers without relying on external platforms. Bitwise defines the on-chain lending vault structure as "ETF 2.0" and directly enters the market. With their capabilities in portfolio building and risk control systems, they design and control the vault themselves, establishing a management fee model directly on-chain.

6 Before Capital Arrives

From the current trajectory, traditional asset managers are most likely to occupy an advantageous position in the maturation process of on-chain lending. As the DeFi ecosystem becomes modularized and labor is divided, the skills genuinely needed by the market have shifted. It is not the ability to code, but the traditional financial expertise in underwriting collateral and setting risk limits. Institutions with decades of experience can directly extend their competitive advantages to the on-chain space.

However, today’s DeFi market remains too small for global megamanagers. The global traditional asset management market is approximately $147 trillion, with BlackRock managing $14 trillion alone. In contrast, the entire DeFi market is around $80 billion, with only $7 billion managed by risk managers. This only amounts to 1/2000 of BlackRock's AUM.

Yet it is this enormous scale gap that reveals the runway for growth. Institutional capital will not enter places where risks are uncontrolled. Once risk manager capital secures its position on-chain and a regulatory framework takes shape, the story will change. Even if only a small portion of $147 trillion flows in, the $80 billion market can rapidly expand.

Some opportunities exist only when the market is still small. Currently, there are only a handful of major players in the risk manager market. Institutions need tracks to go on-chain, and the teams that pioneer these tracks will establish the standards.

Later entering institutions will gain a clearer and safer market but will also become one of many participants within the established standards.